Health Affairs

Medigap Insurance Policies

Bethesda, MD -- A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation examines proposals to reduce some of the cost-sharing benefits Medicare enrollees receive from private supplemental Medicare insurance known as Medigap plans.

Roughly 10 million Medicare beneficiaries purchase Medigap policies from private insurance companies, at a cost that ranges from approximately $1,000 to $5,000 per year, depending on the options available in the plan and the state of purchase. Studies have shown that Medigap policy holders use more medical services than those enrolled in traditional Medicare alone, primarily because the most popular Medigap plans provide "first-dollar" coverage. This means that Medigap actually pays the Medicare deductibles, copayments, and other expenses that beneficiaries are typically required to pay as a means of spreading the cost burden and reining in unnecessary use of services.

Several governmental panels and commissions have proposed limiting the first-dollar coverage under Medigap in order to slow the growth of federal Medicare spending, and help reduce federal budget deficits. Critics say that doing so would hurt Medicare beneficiaries, especially those in poor health and with modest incomes who will have difficulty absorbing the extra expense.

Requiring beneficiaries to pay for a greater portion of these services, many economists and policy makers believe, will deter medical visits that are of limited value and reduce federal spending. But critics argue that Medigap policyholders tend to be sicker than other beneficiaries. Discouraging them from obtaining outpatient medical care might constrain some costs in the short term, but later increase costs for hospitalizations and skilled nursing care.

This policy brief also discusses:

• The different proposals to change Medigap coverage. Bipartisan deficit-reduction discussions last summer recommended barring Medigap plans from providing first-dollar coverage or requiring beneficiaries to pay an annual surcharge of $530. This plan was estimated to save up $53 billion over 10 years.
  
  
• What's Next. As Congress looks for ways to rein in Medicare spending, proposals to reform Medigap are likely to resurface. The Affordable Care Act requires the National Association of Insurance Commissioners to revise Medigap so that policyholders pay some modest portion of their care by 2015. Medigap changes may also be proposed later this year by the new Joint Select Committee on Deficit Reduction (the "Super Committee") that is charged with identifying at least $1.2 trillion in federal spending cuts over 10 years.

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears each month in print, with additional Web First papers published weekly at www.healthaffairs.org. You can also find the journal on Facebook and Twitter and download Narrative Matters on iTunes. Address inquiries to Sue Ducat at (301) 841-9962 or sducat@projecthope.org